Workers’ Comp Insurance v. Opting Out

| | Utilization Review

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Workers’ comp costs continue to rise in most states, and system participants are looking for answers. More to the point, employers are worried that never ending workers’ comp premium increases will force them to do businesses in states where costs are lower. Lower work comp costs, after all, mean lower business overhead and more money flowing to the bottom line. The major stakeholders, specifically insurance companies and employers, are working to find new solutions while health care providers and employees also have concerns. The key issues can be summed up as:

  • Workers’ comp costs continue to escalate
  • Prescription drug costs are a major contributor to claims cost
  • Claims are staying open while injured workers don’t return to work
  • The Affordable Care Act may further increase claims costs
  • Treatment can be excessive
  • Quality healthcare may be less available in many areas

We are hearing more and more buzz about these concerns, and many employers are considering opting out of the workers’ comp system. As the only state that does not require most employers to carry workers’ compensation insurance, Texas is referenced as an “opt out” state. But there is confusion about the term. Opting out is not about not providing workers’ comp coverage for employees, it is about being responsible for work-related injuries in a different manner than purchasing a workers’ compensation insurance policy.

In the late 1980’s, with workers’ comp rates rising an average of 150 percent per year, Texas employers began looking at alternative options to standard workers’ comp insurance. During that time, nonsubscribers formed an association called Texas Association for Responsible Nonsubscribers (TXANS).

What is a responsible nonsubscriber? According to TXANS, there is no ‘magic employer’ that opts out. TXANS membership includes employers that offer coverage for work-related injuries in accordance with Employee Retirement Income Security Act (ERISA). ERISA is a federal plan that outlines the exact provisions that will be afforded to the injured worker in the event of a work-related injury.

The components of ERISA plans vary widely. Some are based on the length of time medical costs are covered, some are based on a maximum dollar per incident or injury, and some are based on other factors. The plans are drawn up by attorneys who are familiar with ERISA requirements and the workplace risks specific to the employers’ environments/industries. Disputes and lawsuits involving ERISA plans must be tried in a federal court rather than local or state courts where cases are tried involving employers that purchased workers’ comp policies from insurance carriers.

In conjunction with an ERISA plan, the majority of nonsubscribers in Texas focus on:

  • Safety in the workplace (injury prevention and safety training)
  • No waiting period for wage benefits
  • High deductible (stop loss) policies for high dollar claims
  • Modified duty alternatives

Clearly, opting out does not mean providing no benefits to employees who sustain workplace injuries. In Texas, employers who do not provide any benefits related to workplace injuries are referred to as “going bare” and assume no responsibility for providing a medical plan for work-related injuries. This does not mean that many of these employees don’t take care of their employees, but they are retaining the legal risks injuries can bring.

Self-insured employers are different than nonsubscribers. Self-insureds participate in the workers’ compensation system and receive the same protection as employers who actually purchase workers’ compensation insurance.    A self-insured employer must provide sufficient proof to regulators that the employer has the financial means to cover work-related injuries.

So you might ask yourself, what are the perceived benefits of opting out?

  • The employer has more control over work-related injuries. The employer can direct care to medical providers who have agreed to participate (perhaps at a reduced cost) and commit to returning the injured worker to their jobs. The employer is more involved (usually with dedicated staff members who help direct the employee through the process). Many employers believe that providing initial care quickly and appropriately reduces any legal ramifications of a work-related injury.hat are the perceived benefits of opting out?
  • The employer generally provides a light duty program in order to keep the injured worker engaged and productive. Job modifications may eliminate the need for wage benefits.
  • Wage benefits begin the day following the injury (when needed), so there is no gap in employees’ income benefits like there are in most state workers’ comp programs.
  • Reduced costs may derive from many sources: medical provider networks, modified duty jobs, and limiting the timeframe for medical treatment in accordance with the ERISA plan.
  • The ERISA plan can identify treatments that can be performed without requiring utilization review (this may have both positive and negative impacts).

What are the negative impacts of opting out?

  • State mandated workers’ comp fee schedules are not required. Any reductions in medical costs come from direct contracts between employers and medical provider or through negotiation.
  • Employees have the ability to engage legal counsel and pursue legal settlements.
  • Costs, if not managed, can become out of control.
  • Treatments may be performed that are out of the standard of care as utilization review requirements may not be included in the ERISA plan or mandated by the employer.
  • Public/employee perception may be negative if treatments vary from what is expected or are perceived as cumbersome to navigate.
  • Insurance carriers may stop underwriting workers’ compensation in the state.
  • Authors of the ERISA plans may not consider input from medical personnel familiar with the given work environment and potential injury risks.

An employer’s decision about which option to choose in dealing with work-related injuries ultimately depends on these key considerations:

  1. The employer’s risk tolerance or comfort level
  2. Ability and willingness to implement safety programs to minimize risks
  3. Commitment to managing an opt out program and provide adequate oversight
  4. Sufficient experienced medical personnel to provide input to the design of an ERISA program

Karen Atkins

Karen Atkins, Chief Operating Officer with UniMed Direct, is leading the conversation, and the industry, on how to make the utilization review process more efficient for all stakeholders: physicians, insurance companies and, most importantly, patients.